Life in Portland

Escrow for Beginners: What to Know When Shopping for Your First Home

Sign here. And here. And here. And here. Wait. There's more.

Sign here. And here. And here. And here. Wait. There's more.

Escrow? What Is That?

Escrow: it’s a word that strikes… maybe not fear, but definitely confusion into the hearts of first-time homebuyers. Not to worry: Urban Nest is here to help. We’ll give you the rundown on what escrow is and how it works, so you can better understand this crucial part of the home buying process.

Let’s Take a Walk Down Escrow Lane

Here’s where it all starts. You’ve just found your Portland dream home. Maybe it’s a historic Georgian colonial in Irvington, an iconic modern stunner in the West Hills or a chic condo in the Pearl. Whatever the case may be, making the purchase won’t be as simple as saying, “I’ll take it.”

You and the seller will both have to put pens to a sale agreement, and once that’s done, your earnest money must be placed in an escrow account, just to let the buyer know that you’re serious about purchasing the home. Stay with us; the earnest money is just the beginning. 

Check our current listings: 2907 SE Malcolm St, Portland OR 97222

Check our current listings: 2907 SE Malcolm St, Portland OR 97222

Escrow: A Place for Safe Keeping

Okay, fair enough. But the question remains: What is escrow?

Historically, the word “escrow” is derived from the term “a scroll.”  In times past, if there was a contract between two parties, it was likely to be written on a scroll by the one person in a village who could write. Let’s call that person the village elder. The elder would write in the terms of the agreement on parchment and make sure that each party to the contract signed. The village elder would roll up that piece of parchment into a scroll and hold onto it for safekeeping. That way, if either party wanted to change the terms, they would have to go back to that person who guarded the scroll in order to do so. Neither of them could unilaterally change the terms of the agreement. 

Simply put, the escrow process is a system designed to make sure both parties meet the stipulations of the purchase agreement, before the sale is completed. Within this system, neither buyer nor seller can make changes to the contract without mutual agreement as indicated by signatures from both parties.

The Escrow Agent: An Impartial Third Party

To ensure that both the buyer and seller hold up their respective ends of the bargain, it’s necessary to enlist the services of an impartial third party. In modern-day Oregon, we don’t use a village elder; instead -- that job is handled by what we call an escrow agent.

Check our current listings: 3554 SE 62nd Ave, Portland, OR 97206

Check our current listings: 3554 SE 62nd Ave, Portland, OR 97206

In the state of Oregon, the escrow officer has their desk at a local title company. While the escrow agent is helping by holding on to your documents and signing paperwork, the title officer at the same company will be researching the deed to the property you are purchasing to make sure it is free and clear to be transferred from seller to buyer at closing.

The escrow agent is entrusted with funds and paperwork associated with the purchase process, including the earnest money, down payment, insurance premiums, loan documents, and the title deed.

Steps on the Path to Homeownership

As a buyer with a newly accepted offer, you’ll be looking at a lot of different steps between offer acceptance and closing.  Your Realtor will be your best guide through this process.  They will help you navigate the following:

1.    Disclosures: You’ll be sent disclosures prepared by the seller that will disclose any information they have to share about their home. If the home is brand new construction, the builder is exempt from providing a seller disclosure since they have never lived in the property. 

2.    Home Inspection: Home inspections can uncover problems with the electrical panel, roof, plumbing or any other main “system” within a house. It’s also recommended that you get a sewer scope (a colonoscopy of your sewer line) as many older homes in Portland have older sewer lines. There are a number of other inspections that your Realtor may recommend as well. Once repairs are negotiated, it’s time to move forward towards your closing and move-in date.

3.    Homeowner's Insurance: Just as you need health insurance, your home needs insurance too. We want to make sure your home and items inside can be rebuilt/replaced should there be a catastrophe such as fire, windstorm, hail, lightning, theft or vandalism.  It can be helpful to do a little comparative shopping as different companies will provide different rates. 

4.    Title Report: The title officer will be sending you a preliminary title report. It’s important to make sure that the deed to the house is clear of encumbrances and that previously undisclosed heirs (like Great Aunt Nellie from Tuscaloosa!) doesn’t sweep in to lay claim to part ownership of the house. 

5.    Appraisal: Before the transaction has closed, the mortgage lender will send in an appraiser to make sure the home you are buying appraises at the purchase price. If the home appraises for less than the agreed-upon price, the bank will only fund a loan for the appraised value. When this happens, there is usually a way to bridge the financial gap, with the seller decreasing the sale price and the buyer bringing in a little extra cash to close the transaction.

Nearly There

With all that out of the way, you’ll be ready to close.  As a buyer, make sure you have at least 90 minutes to sit with your escrow officer who will explain to you the details of each and every piece of paper that you are signing so you’ll know and understand what you are agreeing to. The seller will also make an appointment with the escrow officer to sign their (much smaller) stack of paperwork. 

Check our current listings: 6234 N Kerby Ave, Portland, OR 97217

Check our current listings: 6234 N Kerby Ave, Portland, OR 97217

With all the i’s dotted and the t’s crossed, you’ll then provide the escrow officer with your down payment and additional closing funds (the money can be transferred or a bank check can be used) to the escrow officer, who will make sure every party is paid, according to the sale agreement. Once the seller is paid, the deed is transferred into your name and recorded with the county. 

Congratulations. You just bought a house!

Here’s Your Key

Whew! That’s it! You’re a homeowner. Welcome to Portland. You’re going to love it here. See you around the neighborhood!

[Photos Via: Listings on Urban Nest]